In response to the rapid spread of the coronavirus, there has been a sudden decrease in demand for oil. This is largely due to travel restrictions, as well as the decrease in the movement of goods and other supplies. As a result, the price of oil has fallen by almost a quarter since the virus initially began to spread internationally. In hopes of preventing any further decreases in prices, the Organization of the Petroleum Exporting Countries (OPEC) has decided to cut the oil supply by 1.5 million barrels per day and is encouraging other non-OPEC countries to do the same, especially Russia who is producing more oil than any OPEC member. Despite agreeing to limit some oil production, OPEC is looking to continue cutting back production even more for a longer period of time. As of now, Russian officials are unwilling to commit to any more cuts.
If there are no additional cuts in production with the decreasing demand of oil, reversing the downward trend of oil prices will become increasingly difficult. There is also said to be a possibility that cutting back production by even larger amounts may be insufficient in keeping pace with the falling demand.
Questions:
1. Do you believe that there is a possibility that the demand for oil will increase anytime soon?
2. Do you think this could possibly lead to an overall recession? Will this be damaging to the global economy?
3. Seeing as OPEC only makes up a third of total global oil production, how do you think the others involved in oil production should respond to this?
Given that the coronavirus is so infectious, it will be a long time before this pandemic is over, especially because many countries have yet to be infected. This leads me to believe that oil demand will stay low at least through 2020 and maybe through early 2021. I think countries outside OPEC should all cooperate because a drop in oil prices hurts everyone, not just OPEC, and it would just make this fledgling coronavirus recession even worse if production controls are ignored.
ReplyDeleteUntil the coronavirus is no longer a threat, I believe the demand for oil will continue to decrease. The oil industry depends on travel and the movement of goods for a market, so when it is being restricted due to the concern over coronavirus, they are losing a huge market. I believe that the drop in oil prices has the ability to hurt everyone worldwide, so I do think that the dip in prices will contribute to the overall recession being caused by the coronavirus. Other parties involved in the oil production process will inevitably suffer as well, so I believe they should put all hands on deck to figure out a solution to lessen the severity of the consequences that may result.
ReplyDeleteOnce the coronavirus panic slows down and people are able to travel or at least not afraid to leave their house, the demand for oil should increase, but until then, I think it will just continue to decrease because people won’t need it as much for transportation. I don’t think this will lead to an overall recession as of now though, because it seems like more people are leaning towards electric cars, so the demand for oil was already lessening before the virus. However, the oil market is a big part of the economy, so there is a small chance that there could be a recession. Because OPEC is an international market, if there was a recession, it would definitely affect the global economy.
ReplyDeleteTo build onto Kevin's comment, I do infact believe that this will cause an economic decline, but not an immediate recession. The yield curve has inverted once again, which may be an effect of the COVD-19 but we aren't sure until a longer period. This can infact mean a recession is coming, but we don't yet know the full extent to which this effects the economy. It does so, but how much? I think it can increase in about 4 months based on my predictions, but like I said, we have no idea really. I agree that oil companies should follow-suit, but don't think it will occur at the same time. Each country has their own predictions as to the timeline of the virus and many may predict otherwise. Idk.
ReplyDeleteI agree with the other commenters, given the state of the spread of coronavirus right now, added with the immense fear of travel that has taken over populations in nearly every country, it is unlikely that the demand for oil will increase for at least a couple of months. OPEC's endeavors will ultimately help the globe, although it may be a rocky start. The demand is likely to go back up once the virus clears up more, but there's really no telling exactly how long that may take. Smaller oil companies are likely to keep producing normal levels for a while, then decline along with OPEC. Chances are, there will not be a sudden spike in demand after the months-long low oil demand we are likely to experience. In this situation, people will slowly begin to travel and ship things using oil, it will not happen all at once, thus making the rise in demand for oil a non-issue in the future.
ReplyDeleteAs long as people have to shelter in place at home the demand for Oil will stay low. This is because if people aren't driving or flying, they don't need as much oil. When it comes to other countries, the price for oil is a singular global thing and other parts of the world have no choice but to follow the global price, which is set by the lowest bidder (currently OPEC).
ReplyDeleteUnless this pandemic begins to turn around, the demand for oil will definitely not go up anytime soon. In order to effectively prevent the price for oil from decreasing further, they must keep setting lower and lower maximum limits for production, or at least export, as this will create an artificial shortage/lessening of supply, and therefore allow the price per barrel to increase. This could lead to a recession, but the recession will likely be caused by a multitude of factors currently dragging the worldwide economy down. The places that will experience a recession the hardest due to the lowering price of oil are place where their main export is oil, such as Saudi Arabia, Russia, and Iraq. Because OPEC is only a third of the total worldwide supply of oil, the rest of the main suppliers of oil should also consider exporting/supplying less oil in order to slow down the rapid decline of the price of oil. While this may have some adverse effects, it may be the most beneficial in the long run.
ReplyDeleteI do not think that the demand for oil will increase anytime in the near future. When I go outside, the streets are almost empty, and the shelter in place will stay in place for a while. Almost nobody is driving cars anymore. Additionally, I believe that I read that oil storage is running out too, which is lowering the price even further. Humorously, I read that now in Canada a barrel of oil is cheaper than the popular children's toy "Barrel of Monkeys". I am not sure if this will be the cause of the overall recession, but it will certainly contribute to it.
ReplyDelete